England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		27 April 2001

Morison J

1. This is an Owner's appeal against an Arbitral Award dated 27 May 1999, whereby the Owner's claim against Charterers was dismissed. Leave to make this appeal was granted by Cresswell J. After the hearing of argument, the Court awaited the decision of the Court of Appeal in the case of The Starsin. The parties considered it possible that the decision might affect their arguments. In the event, the Court of Appeal said nothing of relevance to the issues in this case.
2. The facts can be shortly stated, and are taken from the Award. The ELPA is a bulk carrier, chartered by the Owners to Charterers on an amended New York Produce Exchange Form for a one time charter trip from the Black Sea to the East coast of Mexico. En route a fire occurred and damage to the cargo, cotton bales, was caused. Proceedings against Owners were commenced by the cargo interests in the Louisiana State courts and were settled by Owners for US$521,000. Owners then commenced arbitration proceedings against the Charterers contending that the Charterers were liable to them under the charterparty for the amount of the settlement and various costs and expenses totalling a further $250,000 odd. The charterparty, by clause 59, provided that cargo claims were to be apportioned in accordance with the latest edition of the New York Product Exchange Inter-Club Agreement.
3. The issue in this case is the effect of the Inter-Club Agreement [ICA] upon the Owners' claim. If it operates, then the Owners' case fails, because under it damage to cargo caused by unseaworthiness is for the Owners' account, and, for present purposes, that was the cause of the damage to cargo. But the Owners say that it does not operate so as to deprive them of a claim, because the bills of lading signed by the Captain were ante-dated and not claused in accordance with Mate's receipts. If the bills of lading were not regular or properly issued under the charterparty, then, say the Owners, the Charterers could not establish a necessary pre-condition for the operation of the ICA, which, thus, did not apply to defeat their claim. The Charterers say that despite the 'defects' in the bills, the ICA applied.
4. There are, I think, two relevant clauses in the charterparty.

Clause 8:

".....the Captain (although appointed by Owners) shall be under the orders and directions of the Charterers as regards employment and agency; and Charterers are to load, stow, trim, lash, dunnage, secure, tally, unlash and discharge the cargo at their expense under the supervision of the captain, who is to sign Bills of Lading for cargo as presented in conformity with Mate's or Tally Clerk's receipts."

Clause 50:

"The Master to sign bills of lading for all cargoes carried under the Charterparty if required by Charterers without prejudice to the terms and conditions of the Charterparty. Charterers or their agents are hereby authorised to sign bills of lading;..."

5. For present purposes it is necessary only to set out parts of Clause 1 and 2 of the ICA:

"Clause 1

APPLICATION AND INTERPRETATION OF AGREEMENT

Subject to the undermentioned conditions the formula as set forth in Clause 2 shall apply in respect of Charters on the New York Product Exchange form entered into after the 1st June 1984.

(i) It shall be a condition precedent to settlement under the Agreement that the cargo claim, including any legal costs incurred thereon, shall have been properly settled or compromised and the cargo carried under a bill or bills of lading incorporating the Hague or Hague-Visby Rules or containing terms no less favourable. Ex Gratia settlements made for business or other reasons where there is no legal liability to pay the claim shall be borne in full by whom the payment is made and for the purpose of this Agreement no regard shall be had to such payments.

...........

Clause 2

APPORTIONMENT OF CARGO CLAIMS

In all cases where the Agreement applies cargo claims shall be apportioned as hereunder:-

Claims for loss or damage due to unseaworthiness ...100% Owners ..."

6. The arbitrators were asked to determine preliminary issues on the basis of agreed facts.

"(1) Upon the proper construction of the charterparty and the Inter-Club Agreement, does Clause 59 of the former require cargo interests' suit against the Owner to be apportioned in accordance with the latter?

(2) If so, do the Owners' claims against the charterers herein fail".

7. The arbitrators were satisfied that the relevant bills of lading, which were issued by the Master, incorporated the USSR 1968 Merchant Shipping Code and that there was no material difference between the Code and the Hague Rules which was relevant to the claim brought by the cargo interests against the Owners. They also held that there was no suggestion that the settlement made by the Owners with cargo interests was not reasonable. They concluded that the ante-dating of the bills and the issuance of clean and not claused bills had no bearing on the particular cargo claims in question. They concluded that

"In our view the circumstances of this particular claim were such that the requirements of clause (1) [of the ICA] were met and the claim accordingly falls to be apportioned in accordance with clause (2)."

8. On this appeal, the Owners argue that the arbitrators erred in law. They contend that it is a condition precedent to the applicability of the ICA that the relevant bills of lading (that is, the ones under which the cargo claims were brought) should have been bills authorised by the charterparty. An ante-dated bill is, by definition, not authorised by the charterparty, since it is a potentially fraudulent document. The argument about the bills being issued clean adds nothing further to the argument. On the basis of authority, if a bill was not authorised by the charterparty then the cargo had not been carried under a bill of lading to which the ICA applied, and the Charterer had failed to establish the necessary authorisation in this case. Further, the arbitrators appeared to accept that the bills had to be "properly issued pursuant to the charter" but they did not apply this criterion when reaching their conclusion. Thus the arbitrators erred by ignoring the facts which showed that the bills had not been properly issued.
9. For the charterers it was contended that the ICA was not rendered inapplicable by an irregularity in the bills of lading which had no bearing on the cargo claim. Thus, the requirements of clause 1(i) were met. The underlying purpose of the ICA was described by Kerr LJ in The Strathnewton [1983] 1 Lloyd's Reports 219 at 223. The Master had ostensible authority to issue an ante-dated bill, just as he had ostensible authority to issue a clean bill despite clausing in the Mate's receipt. Conceptually this is different from the position where a bill is issued in respect of a cargo which was never shipped. Alternatively, clause 1(i) of the ICA did not govern the position in the light of an express provision in the charter which subjected cargo claims to the ICA, which in truth is simply an apportionment regime as provided for by clause 2 of that agreement. There is no need to imply any term or condition precedent as to the applicability of the ICA. The true principle to be derived from The Holstencruiser [1992] 2 Lloyd's Reports at 384-385 is that

"if and to the extent that in the issue or terms of a bill of lading, the Charterer contravened some requirement of the Charter with the result that the Owner was under a liability which would not otherwise have arisen, then the Charterer's liability to the Owner for the consequences of that contravention is not excluded by the requirement to apportion cargo claims in accordance with the [ICA]." - (Skeleton Argument paragraph 13)

10. Before giving my decision, I shall consider first the relevant authorities:
11. I start with The Holstencruiser [1992] 378 where Hobhouse J considered the applicability of an earlier edition of the same ICA (where, in particular, the wording of clause 1 was identical to that in the present case). He identified the issues before him as falling into two categories of which the first was:

"...the scope of the inter-club agreement as incorporated into these time charters and what criteria have to be satisfied in order to make it applicable to any given cargo claim."

He concluded, on the basis of the wording of the ICA, including in particular, clause 1(i), as follows:

"Accordingly, for the agreement to apply the claim must be a claim which is paid or settled on the basis of a liability under the bill of lading not some other liability.

The next question is what are the criteria which the bill of lading must meet. It must be a bill of lading which could properly be issued under the time charter.

.....

Since the time charter makes express provision for the requirement that has to be satisfied before an authorised bill of lading covering specific goods may be issued under clause 8 and 15, it follows that the charterers have to prove that the bill of lading was properly issued in accordance with that requirement. On this basis they must be prepared to produce the relevant ship's receipt and show that the document was issued with the authority of the Master.

.........

On this basis the charterers must be prepared to prove that the goods were actually received by the owners, that is to say either on board the vessel or by a servant of the owners or by an agent of the owners with authority to receive goods on behalf of the owners. On either basis, the charterers and their agents have no authority to issue a bill of lading or any form of receipt for goods which have not in fact been received by owner (or their servants or authorised agent).

.........

Therefore, charterers must be prepared to prove that the relevant bill of lading was properly issued under the time charter which, for the reasons I have given, amounts to the same thing as saying that it was issued for goods which it can be proved had passed into the possession of the owners."

Clause 8 of the charterparty in that case is slightly, but I think insignificantly, different from clause 8 in this case.

12. The second case, is a decision of Rix J, as he then was: The Hector [1998] 2 Lloyd's Law Reports 287. The facts are different and do not matter. He said that the charterparty in that case contemplated that the charterer would sign the bills of lading for the Master; ie for the Owners.

"Nevertheless, on the facts the bill of lading was not authorised by owners. .....for the present it is enough to say that, whether or not Withersfield [the charterers agents or nominees] were competent at all to sign for owners, they were certainly not authorised to sign a bill which was not in conformity with the mate's receipt, nor to sign one which predated the date of completion of he loading.

.........

As for pre-dating, the prohibition of [sic] predating is so well known that I cannot accept that [the charterers] did not realise that it required express authority (if, indeed, even express authority can suffice). .......

........

.......in my judgment it cannot in any event be said that a time charterer has his owner's usual or ostensible authority to sign a bill of lading not in conformity with Mate's receipts or to sign a pre-dated bill of lading."

13. Later in 1998, HHJ Diamond gave a judgment in The Hawk [1999] 1 Lloyd's Law Reports 176. In this case, the charter was, effectively, in identical terms to the charter in this case and it incorporated the same ICA. The charterers were sued by the cargo interests and claimed an indemnity, under the ICA, from the Owners. The Owners argued that the bills of lading had not been signed in strict accordance with the mate's receipts and that there was no liability under the ICA for that reason. The arbitrators accepted the charterers argument that to defeat the claim there had to be a causal connection between the cargo claim and the discrepancy, and that, as there was none, the Charterers succeeded. On appeal to this court, Judge Diamond analysed the decision of Hobhouse J in The Holstencruiser and concluded that the ICA provided no means of identifying which bills are to qualify for "apportionment of cargo claims" otherwise than by saying that the bills must incorporate the Hague Visby Rules or their equivalent.

"It cannot be [sic] contemplated, for example, that bills having no connection with cargo carried in the chartered ship can nevertheless qualify for apportionment."

He said that there was a lacuna in clause 1(i) which had to be filled and that there is a need

"to import a test which ensures that bills which ought not to have been issued by one or other party are not put forward for "apportionment of cargo claims" while still giving effect to the general intention ... that all liabilities for cargo claims whether incurred in the first instance by owners or charterers shall be apportioned between them in accordance with the agreement."

He said that the second factor to be taken into account was that a bill of lading might be issued in a variety of different circumstances in the case of chartered ships. Third, a bill of lading is a complex document and to require that it should accord with all the terms of the charterparty before the ICA could operate was going too far. And in conclusion,

"...it is to be implied in clause 1(i) of [the ICA], as incorporated in the charterparty, that to qualify for settlement under the agreement the bill of lading must have been authorised under the charterparty. To my mind however it is important that this test be applied broadly and flexibly so as to give effect to the commercial purpose of the [ICA] and so as not to reduce its effectiveness as a means of settling the incidence of liability for cargo claims as between owners and charterers. I regard this point being as relevant both to the nature of the implied condition itself, namely that the bills must have been "authorised by the charterparty" and as to how that condition is to be applied in different factual circumstances."

He summarised his conclusions in this way:

".......

2. Where a shortage claim is concerned and where a question arises as to whether the relevant goods were ever delivered into the possession of the owners or their agents at the port of loading, then, as held in The Holstencruiser, it is for charterers to prove that the bill of lading was authorised in the sense that it was a bill which the master would have had the authority of the owners to sign. This normally involves that the charterers must prove that the relevant goods were actually received into the possession of the owners and to prove this they may need to produce and rely on the relevant mate's or tally clerk's receipt. The bill will be authorised to the extent that the goods acknowledged in it have in fact been received by the owners.

3. Where no issue arises of the kind mentioned in (2), then prima facie the bills will be authorised bills and any omission in the bills of notations to be found in the receipts will not, in itself, constitute a bar to recovery under the [ICA].

4. Where however there is a causal connection between the cargo claims in respect of which indemnity is sought and the discrepancy between mate's receipts and the relevant bill of lading, the owners may be able to recover damages for breach of such clauses as clauses 8 and 50 of the present charterparty and such damages may either reduce or extinguish the contribution due to the charterers under the [ICA] agreement."

14. My attention was also drawn to a passage in Colman J's judgment in The Starsin [2000] 2 Lloyd's Law Reports 85 at page 97 where the Judge said:

"Not only does this conclusion give effect to the conceptual basis of ostensible authority but it also reflects a further important policy consideration. That is that if an innocent shipper, indorsee or consignee could not rely on statements on the face of the bill of lading as to such matters as the date of shipment and the absence of clausing and was obliged to verify the accuracy of the date and the apparent good order and condition of the goods each time he took a bill of lading, that would represent a most serious impediment to international trade which depends so heavily on the accuracy of bills of lading as negotiable instruments."

15. It seems to me that there is a potential tension between the contractual requirements of the charter, absent the ICA, and the terms of the ICA itself. As Judge Diamond was saying, there is a tension between the commercial good sense of applying the ICA, which produces a broad brush resolution to complicated cargo disputes in an uncomplicated way, and the way that clause 1(i) operates, if Hobhouse J's judgment is not subject to some kind of limit.
16. Absent authority, I would take the following approach. The charter determines the rights and obligations of the parties inter se. The ICA is dealing with what should happen to third party claims successfully made against one or other of them. The ICA applies only to cargo claims which have been brought under bills of lading which contain the Hague Visby Rules governing the carriage. If the goods were never shipped so that the bills never applied to the cargo then the claim would be outwith the ICA. If the goods were shipped but the bills were not issued in accordance with the Charter, provided the cargo claim was not affected, that is provided the claim was still a claim under the bill and subject to the regime of the Rules, then the ICA applies. The ICA only ceases to apply if the cargo claim is not made under the bill [for any reason] or alternatively, for any reason, the protections and limits in the Rules are lost. There is no need to search for any implied term. The ICA operates as it stands: there must be a cargo claim under the bill and the bill must contain the Hague Visby Rules or their equivalent. In short, I would agree with the arbitrators in this case. Their decision provides a sensible commercial solution.
17. I am troubled by the decision of Hobhouse J.. His stature as an experienced, commercial judge of high repute cannot be doubted. But his decision in The Holstencruiser appears to me, on one view of it, to conflict with the underlying philosophy of the ICA as explained by Kerr LJ in The Strathnewton. The ICA is similar to a knock for knock agreement between motor insurers. Clause 8 of the Charter in the New York Produce Exchange Form had proved a fertile ground for legal dispute between owners, charterers and cargo interests. Who should be sued, and who was responsible in law for what happened during the voyage or on loading or discharge? The ICA is the mechanism by which those disputes can be avoided, through a rough and ready form of justice. If the application of the ICA were dependent upon a resolution of issues arising out of the charterparty, then to that extent the effectiveness of the ICA, and its underlying purpose, would be undermined. But, as Hobhouse J said, must there not be a threshold over which the claimant must cross before the ICA comes into play? The goods must have been shipped in circumstances where the cargo interests' rights were governed by the Rules, or their equivalent. But who is required to establish that the goods were shipped? If the goods were never shipped then the claim would not be a claim to which the ICA could apply. According to Hobhouse J., proof that the goods were shipped, would fall on the person relying upon the ICA.
18. From a practical point of view, as between cargo interests on the one hand, and owner or charterer on the other, a settlement of the cargo claims might reflect a compromise of a number of contentions: the goods were never shipped, the vessel was unseaworthy, the bills of lading were ante-dated or not claused as they should have been; bills of lading were never issued (and the owner or charterer is sued in bailment). And without a trial, it would not sensibly be possible to say to what extent the compromise reflected the force of any one contention. If it were necessary in every such case for the owner or charterer to have to prove against the other that the goods were loaded or were damaged before the voyage or that the bills of lading were properly issued, then the ICA would fail to achieve its purpose.
19. On balance, I am of the view that conclusions 2 and 3 of Judge Diamond in the Hawk are correct. They respect the decision of Hobhouse J. but confine it to shortage claims. But I beg to differ with his fourth conclusion for the practical reason that it will not be possible where there has been a compromise of the cargo claims to say to what effect if any a particular contention has had on the ultimate agreed figure. There is, I think, no need to go further than conclusion 3. The unresolved contentions between the parties are best dealt with by the knock for knock agreement and the broad brush resolution of cargo claims contemplated by the ICA. Such an agreement is not just for the benefit of owners and charterers but also for cargo interests. If an owner or charterer were concerned that a settlement might not be apportioned in this rough and ready way, the temptation will be to force cargo claims to litigation. That was the very thing which the ICA was designed to avoid.
20. Thus, I would uphold the arbitrators' award, although I do not consider that it was necessary for them to ask whether there was a causal connection between the matters relied upon and the settlement, since the causal connection may often not be possible to ascertain. In my view, once it was established that the cargo claims were based upon bills of lading which incorporated the necessary limitations then that would be sufficient to cross the threshold into the application of the ICA.
21. I reject the alternative argument which was advanced that in some way clause 1(i) was not incorporated into the charter because of the wording of Clause 59. The ICA was incorporated in full and I agree with the arbitrators' rejection of a construction argument which seems to me to be quite hopeless.
22. I dismiss the appeal.